Buy these 2 popular internet software titles

There is always an abundance of stocks to choose from, but investing is often more fruitful and rewarding when investors understand the company’s business model and believe in the company.

Here are two well-known companies in the Internet software industry that investors might be feeling optimistic about as we head into the new year. The Internet software industry is currently in the top 24% of more than 250 Zacks industries.

Chegg CHGG

Chegg (CHGG) is a significant investment on many fronts. Many investors are setting aside money for their children/grandchildren’s future education or even looking to complete a higher level of education themselves and are familiar with Chegg’s social education platform.

Chegg is a popular option for students and students to study and understand the course material. The company rents and sells textbooks and provides electronic textbooks as well as homework help, college admissions, and scholarship services.

CHGG currently holds a Zacks Rank #2 (Buy) with rising earnings estimates for FY22 and FY23.

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CHGG’s earnings are now expected to fall -1% in 2022 to $1.28 per share, but that’s up 14% from $1.12 per share 90 days ago. FiY23 earnings are expected to rise 7% to $1.38 per share with earnings estimates also rising in the latest quarter.

Sales are expected to decline -1% this year but increase 7% in FY23 to $816.84 million. Sales of the AF23 are on track to grow an impressive 199% over the past five years.

Chegg stock is down -9% year over year. S&P 500 -18%. This also outperformed the Nasdaq -29%. Since going public nearly a decade ago, CHGG is up +205% to beat even the broadest indexes.

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Trading about $27 a share, Chegg stock trades at 21.9 times forward earnings. This is well below the Internet software industry average of 45.4 times. Even better, this is well below its 10-year high of 501X and a 79% discount to its 10-year median of 106.2X.

PayPal PYPL

Another popular Internet software stock that looks attractive at current levels is PayPal (PYPL). PayPal has become one of the largest providers of online payment solutions following its independent spin-off from eBay EBAY in 2015.

PayPal is responsible for making payment solutions much easier for consumers during the rise of the internet as frequent checkbook use has become obsolete and incompatible with online shopping.

PayPal stock may have reached oversold territory. Wall Street questioned the premium paid to PYPL earlier in the year due to rising inflation, but the stock looks attractive at current levels. PYPL currently sports a Zacks Rank #2 (Buy).

Trading about $73 a share and up about 62% from its 52-week highs, PYPL has a P/E of 23.7x. This is well below the Internet software industry average of 45.4 times. PYPL is trading 170% below its five-year high of 87.8x and at a 50% discount to its median of 48.1x.

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Image source: Zacks Investment Research

In addition, earnings estimates have increased. Earnings are now forecast to fall -11% to $4.08 per share in 2022, but that’s up from EPS estimates of $3.93 per share 90 days ago. Fiscal 2023 EPS is expected to rebound and climb 17% to $4.78 per share. That’s also up from last quarter’s estimates of $4.70 per share.

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Image source: Zacks Investment Research

On the top line, sales are forecast to rise 8% this year and another 8% in FY23 to $29.88B. Fiscal 2023 sales would represent a 68% growth over pre-pandemic levels with 2019 sales at $17.77 billion.

With solid growth still expected, the stock’s decline this year is increasingly looking like a buying opportunity. PYPL fell -60% YTD to underperform benchmark and Nasdaq.

However, since its spin-off from eBay eight years ago, PYPL is still up +100% to beat the benchmark and narrowly trail the Nasdaq.

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Image source: Zacks Investment Research

Bottom line

Trading attractively from their past, Chegg and PayPal could see their shares rise as we head into 2023. These popular tech companies have businesses that are well known, beneficial and useful to consumers. The increasing revisions to earnings estimates and top-line growth indicate that this should continue.

Zacks Names “Best Single Pick for Doubles”

Out of thousands of stocks, 5 Zacks experts each picked their favorite to skyrocket +100% or more in the months ahead. Out of these 5, Research Director Sheraz Mian picks one that has the most explosive edge of all.

It’s a little-known chemical company that’s up 65% from last year, but it’s still cheap. With relentless demand, rising earnings estimates for 2022, and $1.5 billion in share buybacks, retail investors could step in at any moment.

This company could match or outpace other recent Zacks stock set to double as Boston Beer Company which is up +143.0% in just over 9 months and NVIDIA which is up +175.9% in a year.

Free – see our top stock and 4 runners-up >>

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Chegg, Inc. (CHGG): Complimentary Stock Analysis Report

PayPal Holdings, Inc. (PYPL): Free Stock Analysis Report

eBay Inc. (EBAY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.